Since fixed mortgage rates have been dropping like flies lately, many Canadians are beginning to wonder if they should abandon their current mortgage and refinance at a lower rate.  “How do I do this?  Is it worth it?   What is it going to cost me?  WHERE DO I BEGIN!?” … sounds stressful doesn’t it?  Let me help!

The Break-Up

First and foremost, you need to figure out what all of this is going to cost you.  It doesn’t take a genius to know that paying $10,000 in penalties to save only $5,500 in interest with a lower rate isn’t exactly worth it.  So, what is the penalty going to be to get out of your mortgage?  GENERALLY SPEAKING (check with your lender), it is the greater of 3 months interest or the Interest Rate Differential (IRD).  3 months interest is pretty self explanatory, but the IRD involves a little math.

An Example

Let’s say that you have a mortgage balance of $200,000, your mortgage rate is 5.29% (originally a 5 year fixed rate) but you’re not up for renewal for another 2 years and you’re looking at another 5 year fixed at 2.99%:

3 months interest = [(mortgage balance x annual interest rate)/12] x 3
= [($200,000 x 5.29%)/12] x 3
= ($10,580/12) x 3
= ($881.67) x 3
= ~$2,645

IRD = mortgage balance x months remaining in term x [(your rate – current rates)/12]
= $200,000 x 24 x [(5.29% - 2.99%)/12]
= $200,000 x 24 x (0.1675%)
= $9,200

In the above example, (I hope that you are sitting down) your penalty would be a whopping $9,200 .  Do you HATE MATH?  Let us do the estimate for you, check out our mortgage penalty calculator.

But What’s the Benefit?

The benefit and break-even point can be difficult for the average person to calculate, especially when you have so many options available to you.  You can pay the penalty out of pocket or finance the penalty by increasing your mortgage amount; you can keep your payments consistent (therefore paying your mortgage off FASTER with a lower rate) or maybe you’d like to better your cash flow situation and have a lower payment with the lower interest rate!  Having said all of that, you should really speak to a licensed agent to help you figure it out.  Let them do the math!

Other Costs to Consider

If you are staying with the same lender, these charges shouldn’t apply.  However, if you are thinking about jumping ship you may incur a discharge fee to leave (approximately $250), legal fees to re-assign the mortgage (approximately $495-$1,000) and/or an e-registration fee to the tax department (approximately $72.50).  Additionally, the lender may require an appraisal to be conducted on the property.  An appraisal can run anywhere from $100-$250 depending on the type of appraisal required (i.e. drive by or full).  Sometimes the appraisals are rebated by the lenders and sometimes they are extra.  Ensure that you take these costs into consideration as well before jumping into a new mortgage rate

RateSupermarket.ca Week in Review

Bears aren’t the only thing hibernating in the winter months.  Typically there isn’t too much activity in the real estate (and mortgage) market in the first months of the year either.  So, in an effort to win over some business and fill their sales pipelines, many lenders have been offering some incredibly low rates.

**This chart is based on changes over the last week to our Best Mortgage Rates Canada page. Mortgage Rates may vary depending on Province.

It comes to no surprise that nearly half (49.6%) of our visitors are searching for the best 5 year fixed closed rate (due to all of the hype from last Friday’s rate drop announcement by BMO).  However you may find it interesting that the other half (48.6%) of our visitors are searching for the best 5 year variable closed rate; although there hasn’t been any big changes in pricing for the 5 year variable rate it still remains one of the top mortgage searches!  The next most popular searches were the 3 and 4 year fixed products (each at 0.4%).

What’s in store for mortgage shoppers next week?  Stay tuned!

Bank of Montreal (BMO) shocked the mortgage market by dropping its Low Rate 5 year fixed mortgage to 2.99% effective today, January 14, 2012.  It is a limited time offer that is available only until January 25, 2012.

This is the all time lowest fixed mortgage rate we’ve seen offered by a big bank, and is a fundamental shift in strategy in the market as big banks look to take market share by enticing customers with lower mortgage rates versus selling customers on their personal advice and the benefits of having all their products with one company.

TD mortgage rates also dropped today as they lowered their special discounted rate on the 4 year fixed product to 2.99% as well.  Expect more of the banks to follow suit in the next few days.

2.99% 5 year fixed mortgage rates were offered by mortgage brokers late in 2010 but they have never publicly been offered by a major bank like BMO.  ‘Publicly offered’ is the operative term here as bank mortgage specialists and the branches do have discretion to drop rates for certain clients.

These lower fixed mortgage rates have been expected as the benchmark government bond yields have headed lower in the past few months, and even dropped almost 3.4% today (Jan 13, 2012), while the banks have held their mortgage rates steady.  This has given them a nice spread between the two, increasing profit margins.  Our Mortgage Rate Outlook Panel of experts thought we would see this mortgage rate trend for lower rate fixed products this month and they proved to be correct.

Here are details for the BMO Low-Rate Mortgage:

• 5 year fixed term
• Only 10/10 pre-payment privileges (vs 20/20 on other BMO products)
• Maximum amortization period: 25 years
• You can’t refinance or switch to another mortgage lender before the 5 year period is over
• Not available on non-owner-occupied rental property
• You can see all BMO Bank of Montreal Mortgage Rates here.

This is a low rate product that could work for those that are certain on what the next 5 years will bring, but as most Canadians typically transact on their mortgage every 3 years or so, this may not make sense for most home owners.  If you’re looking for more flexibility, you may want to compare this against the best mortgage rates in your province to see what other offers are available that may be better suited to your own situation.

We looked at the Best of the Best for Chequing Accounts and the Best of the Best for Savings Accounts, now we’re reviewing the bank websites and their special educational content.

All the big five banks include details about their various accounts, current mortgage rate info, tools like mortgage calculators and budget planning strategies, branch locators, and a search function to help you find what you’re looking for. But not all sites are created equal. Here’s what I think about each of the sites and their special features.

Bank of Montreal (BMO)

The site starts on a very busy home page that includes a search function at the top left and, below that, tabs for rates and “tools and calculators.” The later includes calculators for mortgage payments, TFSAs, loan payments, and retirement planning. Click on any and you’ll get a pop with a basic calculator tool that’s pretty easy to use.

For more detailed info, you’ll have to delve into the “Personal” section or select one of the somewhat cluttered options on the screen, like “Buying my first home,” which leads to a trove of information from a “Mortgage Basics” glossary to PDF worksheets you can printout for offline number crunching.

Special Feature - BMO customers can sign up for the bank’s MoneyLogic Guide, a free online budgeting tool that allows you to sync all your BMO accounts to track your monthly budget and savings goals. You can view your progress in charts and graphs, or download a PDF to print off.

Canadian Imperial Bank of Commerce (CIBC)

A cleaner homepage includes key links stacked at the left (Bank Accounts, Credit Cards, Mortages, Investing), a search at the top right, and timely reports from CIBC experts, like the four-page PDF, “Year End Tax Tips.”

Special Feature - CIBC’s Advice Centre – reached via a prominent tab at the top centre of the homepage – includes multiple video clips and articles on a broad range of topics, from “Reducing Your Debt” and “Home Ownership” to “Family Finances” and “Retirement Planning.”

Royal Bank of Canada (RBC)

RBC’s global reach (it’s the biggest of the Big Five) is evident right from the homepage which has separate tabs at the top for operations in Canada, the U.S., International, and Caribbean (which apparently isn’t considered “international”), and its various divisions – RBC Insurance, Capital Markets, Wealth Management, and so on. For all that, it lacks a search function on the homepage. The downside for users is that you have to dig deep to get the info you want.  The advice center is pretty good, but the videos are a bit too sales focused for my liking.

Special Feature - Most of us worry about our online security, but probably don’t do enough to protect ourselves. RBC has prominently placed a “Privacy and Security” section on the main page, with detailed advice on how to protect yourself online, avoid common scams, and prevent identity theft. There are even easy links for reporting a suspected phishing scam. (Though the guy who automatically pops up in the lower-left and starts telling you more…can be a bit jarring if you’re doing some late-night research.)

Scotiabank

Scotia’s site features the cleanest design – when visited in early December, the page was dominated by an image of an elderly gentleman with his grandkids. Above that, are seven dropdown menus, including credit cards, borrowing, and rates, that bring up multiple relevant tools and explanatory articles.

Special Feature - Scotia Online employs a mix of short articles and embedded YouTube clips to explain things, but it does seem a little more geared to specific details on the company’s products as opposed to more generic personal finance education. That said, highlights include an accessible glossary of banking terms, and a Future Value Calculator that lets you see how much a regular investment contribution will grow over 20 years at various estimated rates of return.

TD Canada Trust (TDCT)

If you have an aversion to green – the colour, not U.S. dollars – this site is not for you. (I counted four different shades.) But we’re here for financial advice. And TDCT does provide a lot; you just have to discover the “Planning” tab on the home page to find the info you’re looking for.

Special Feature - TDCT’s Planning section is the go-to part of their website for a broad range of financial advice. Articles range from overviews on how to organize your finances – and what you hope to achieve – to savings calculators to help you reach your goals. Back on the homepage, TDCT also includes a News link if you’re interested in getting the bank’s Daily Morning Market Update or signing up for RSS feeds.

Highlights from the not-so-big banks

Customers of PC Financial (a CIBC subsidiary, run through Loblaw grocery chain) can sign up for a monthly Financial Aisle Newsletter that includes tips like: “Remember that legitimate institutions will never ask you to confirm or to disclose personal financial information like PIN numbers or social insurance numbers over the internet.”

ING Direct has a number of online tools, including the Rent Translator that quickly shows what your monthly rent payment would equate to in terms of a mortgage, including a table that shows how much you’d pay it down year-by-year.

Anyone who’s opted to bank with Ally Canada will appreciate the icon at the top left of the page that tells you the wait-time for the telephone help line. It’s a lot quicker to log onto the site than punch in all your account info and follow the phone prompts only to discover “we’re currently experiencing higher than normal call volume…”

Banks tighten their belts

There’s nothing like a bit of mortgage rate activity to get Canadians out of a post turkey daze.

This week, all of the big banks have announced decreases to fixed mortgage rates. RBC was the first one to drop rates by 10 basis points, quickly followed by Scotiabank, TD and BMO. CIBC announced today that they would follow suit as well. This puts the popular 5 year fixed rate at 5.29%.

Fixed mortgage rates are affected by the Bank of Canada bond yields for the same term. Since the middle of September we’ve seen bond yield drop steadily. At the beginning of October, it was evident that yields had decreased, but few experts expected the banks to react by lowering fixed mortgage rates.

Our Mortgage Rate Outlook Panel of experts felt strongly that lenders had already tightened their belts enough by squeezing margins, and that any extra decreases were unlikely.

Since then, the US has confirmed sinking consumer confidence, decreased job creation, soaring commercial vacancies, and a decision by some of the largest mortgage lenders to freeze foreclosures on residential properties. The Canadian outlook seems to be moving along (albeit at a slow pace), but without decent recovery from our largest trading partner, we’re limited in terms of growth.

So as the banks pull their belts a little bit tighter this week (most of us would find that very difficult following the Thanksgiving weekend), consumers are rewarded with incredibly low fixed mortgage rates.

PS. RateSupermarket.ca is currently showing a 5 year fixed rate of 3.39% (Oct 13th, 2010). This is a full service mortgage offered by a chartered bank. Get it now – we don’t know how long it will last!

Here’s a snapshot of the lower fixed mortgage rates offered by two of the banks (all rates decreased by 0.10%)

Rate term
6 month convertible	4.85%	4.95%
1 year closed	3.60%	4.40%
2 year closed	3.95%	4.25%
3 year closed	4.60%	4.80%
4 year closed	5.54%	5.64%
5 year closed	5.89%	5.89%
7 year closed	6.95%	6.90%
10 year closed	7.00%	7.25%

Lower bond yields

Fixed mortgage rates ware mainly influenced by government bond yields and we’ve seen the benchmark 5 year yield come off by 14% since the beginning of June, and is even down by 3% today to 2.35%.

Here is a chart of the 5 year bond yield over the past 3 months.

If this continues we could see fixed mortgage rates continue to drop next month as well.

TD Canada Trust and BMO Bank of Montreal were the first big banks to drop their benchmark posted 5 year fixed mortgage rates by 0.15%, effective today May 8, 2010. This comes as the main influence on these rates, the Government of Canada 5 year bond yields have dropped over the few weeks.

Fixed mortgage rates have been yo-yoing since late March when the 5 year fixed rate jumped up by 0.60%, the biggest one day increase in over 10 years, followed by another 0.25% bump a few weeks later, as follows:

Posted 5 year fixed mortgage rate changes since March:

• March 29: 5.25%
• March 30: 5.85% (+0.60%)
• April 14: 6.10% (+0.25%)
• April 27: 6.25% (+0.15%)
• May 8: 6.10% (-0.15%)

Only the 5 year fixed rate was changed, all other mortgage rates remained the same.

CIBC

CIBC mortgage rate changes:

TD

TD mortgage rates changes:

Fixed Rates

Variable Rates

VIRM Closed TD Mortgage Prime
VIRM Open TD Mortgage Prime + 0.80%

BMO

BMO mortgage rate changes:

Fixed Rates

Variable rates

5 year closed 2.25%
3 year open 3.05%

Special Offers*

5 year(fixed/closed) 4.29% -0.19%

*This special discounted rate is not the posted rate of BMO Bank of
Montreal. Rate is subject to change without notice. Offer may be
withdrawn or extended without notice. Mortgage funds must be advanced
within 90 days of the application.

Scotiabank

Scotiabank mortgage rate changes:

Their special discounted rates* also changed:

one-year fixed closed 2.35 per cent (decreases by 0.20 per cent)
five-year fixed closed 4.29 per cent (decreases by 0.25 per cent)

* The special discounted rates are not the posted rates of Scotiabank. Rates are subject to change without notice. Offers may be withdrawn or extended without notice and cannot be combined with any other rate discounts, offers, or promotions. Mortgage funds must be advanced within 120 days of the application date. Other conditions may apply.

The fixed rate increases range from 0.10% – 0.35% while variable rates remained unchanged. The latest rates are now as follows:

Bank mortgage rate changes

Special rate offers

Scotiabank special offer

* The special discounted rates are not the posted rates of Scotiabank.
Rates are subject to change without notice. Offers may be withdrawn or
extended without notice and cannot be combined with any other rate
discounts, offers, or promotions. Mortgage funds must be advanced within
120 days of the application date. Other conditions may apply.

BMO Special offer

*This special discounted rate is not the posted rate of BMO Bank of
Montreal. Rate is subject to change without notice. Offer may be
withdrawn or extended without notice. Mortgage funds must be advanced
within 90 days of the application.

BMO annouced that some of their past and former mortgage customers may be entitled to refunds as some customers may have been charged:

“incorrect fees and/or penalties in excess of what was disclosed in our mortgage documents

You may be eligible for a refund if between:

If you already have a BMO bank account, you would have automatically been credited with a refund on July 29, 2009. If you think you qualify but didn’t received a refund then call 1-866-991-0801, Monday to Friday from 8 a.m. to 8 p.m. (ET).

Bank of Montreal (BMO) announced raised it’s residential mortgage rates effective, today, June 2, 2009.

The rates that are affected are:

(*) This special discounted rate is not the posted rate of BMO Bank of
Montreal. Rates are subject to change without notice. Offer may be
withdrawn or extended without notice. Mortgage funds must be advanced
within 90 days of the application.

This is the first increase in the posted 5 year fixed mortgage rate in 8 months and is due to a large increase in bond yields.

Expect the other big banks to follow suit soon.